Texas tries to lure California businesses

Andrew S. Ross, Chronicle Columnist

Published 8:41 pm, Wednesday, February 6, 2013

Texas Gov. Rick Perry, in his State of the State address last month, extols his state's business climate. In a series of radio spots, he says building a business in California is "next to impossible."
Photo: Eric Gay, Associated Press

Texas Gov. Rick Perry, in his State of the State address last...

Texas Gov. Rick Perry is making a pitch for California companies to move to his state.
Photo: Eric Gay, Associated Press

Texas Gov. Rick Perry is making a pitch for California companies to...

DALLAS - JULY 11: (FILE PHOTO) The Apple logo is illuminated on the side of the Apple Store at daybreak July 11, in Dallas, Texas. Apple announced a 26 percent profit increase in the last quarter, much of which can be attributed to iPhone sales. (Photo by Rick Gershon/Getty Images)
Photo: Rick Gershon, Getty Images

DALLAS - JULY 11: (FILE PHOTO) The Apple logo is illuminated on the...

The $24,000 ad campaign running on Bay Area and other radio stations this week - "Building a business in California is next to impossible," etc. - is part of the $19 billion Texas is estimated to spend annually on tax breaks and other incentives to keep Texas businesses happy and lure companies from other states, especially California.

Perry may have more to say about that when he appears live and in-person next week in San Francisco, where he is scheduled to meet with local CEOs.

Like, are Texas' taxpayer-funded efforts really paying off?

According to numerous studies, the economic needle between California and Texas has barely moved in the past few years. There have been relatively few corporate relocations in either direction. From 2003 to 2009, Texas saw a net job gain of just 28,000 from out-of-state companies moving to or setting up branches in Texas, according to one recent survey. For much of 2012, California outpaced Texas in terms of job creation.

Despite a Texas "wide open for business" website boasting of all manner of California companies heading its way, "It's rare for a company to move to Texas lock, stock and barrel," said James Renzas, principal of RSH Group, an Irvine site selection consultancy. "More likely you start by putting an office there, test the waters and then expand," said Renzas, who was hired by the Greater Austin Chamber of Commercein 2011 to help attract California businesses to the Texas capital.

A few California companies have moved their entire operation to Texas recently, including Xeris Pharmaceuticals, a Larkspur startup that relocated to Austin in 2010, because, in the words of CEO John Kinzellat the time of the move, "Texas has never created that kind of, you know, regulatory spaghetti bowl."

In the same year, LegalZoom, a Los Angeles online legal document service, moved most of its operations to Austin, where it's expected to employ 600 people over the next three years.

Andrew Puzder, CEO of CKE Restaurants, has already ruled out opening more branches of its Carl's Jr. chain in California (as opposed to 300 new ones in Texas). Puzder threatened to move company headquarters from Carpinteria (Santa Barbara County) to Texas, because, "If Texas is where we're growing, Texas is where we need to be." He might have already done it had Brown not called him and persuaded him to reconsider.

Meanwhile, Silicon Valley companies like Apple, Facebook, Oracle, eBay and SunPower have expanded their Texas presence, mostly in Austin. Of the 225 companies that moved into the Austin area between 2004 and 2011, 63 were from California, according a survey published last month by Good Jobs First, an advocacy group in Washington. In December, Chevron announced that it will move 800 members of its Bay Area staff to Houston.

They've been lured in part by millions of dollars in subsidies ($30 million in Apple's case) from Perry's "deal closing" Texas Enterprise Fund, a cash-grant relocation program. Critics, however, have noted the program's links to campaign contributors and its failure to meet its own job-creating targets.

Renzas, whose firm had a one-year, $150,000 contract with the Austin chamber in 2010, thinks financial incentives offered to California companies play a part, but a small one. "It's much more about labor market availability and other assets, like Austin, with its university, tech and youth culture - rather like the Bay Area," he said.

Kish Rajan, director of Brown's recently formed Office of Business and Economic Development (Go-Biz), has a slightly different take. "It's puzzling that Texas would award so much money to tech companies that clearly want to be in Austin for other reasons, including the fact that other tech companies already have operations there dating back to the dot-com boom of the 1990s."

But this is not simply the Rick Perry show. Texas municipalities have long had the power to impose taxes specifically for economic development purposes. Allen, a suburb of Dallas, population 87,000, has an annual budget of $8.5 million for "creative marketing and competitive incentives to promote Allen to the business community." The Austin City Council kicked in $200,000 of incentives, in addition to the state's $1 million, to encourage LegalZoom to move there.

"One of the issues facing California is, of course, its business friendliness," said Renzas. "But the real story is we're in the little leagues of coordinated economic development compared to Texas."

On the other hand: "I can understand why Rick Perry is interested in California. We were the national jobs leader for most of the last year with 257,000 new private sector jobs," says Rajan.

California officials could also mention some of the out-of-state companies that have recently expanded here, including Dell of Round Rock, Texas, with its new R&D center in Santa Clara; Samsung and its expanding R&D facility in San Jose; Caterpillar opening a 400,000-square-foot distribution center; and Amazon building three fulfillment centers in California, including one in Tracy.

There are at least two companies - one from Massachusetts, the other from Maryland - that have moved their headquarters to California. Germany's Zollner Electronics moved its entire manufacturing (yes, manufacturing) operation to Milpitas in 2011.

More recent data include the 60,000 jobs added in Silicon Valley and San Francisco last year, the most in the last decade, according to a Joint Venture Silicon Valley report this week. And the 30 advanced biofuels companies operating in California - the most in the United States - compared with five in the energy empire of Texas, according to a survey published Wednesday by Environmental Entrepreneurs, a business group in Washington.

As for venture capital, which, of course, makes it possible for many businesses to build, California once more outpaced the nation in 2012, with $3.2 billion in investments, including the largest single investment - $155.9 million for Hayward biotech firm Intarcia Therapeutics. Texas total: $924 million.

"What works for growing an economy is what California has been doing with its incentives: supporting in-state expansions and startup companies," said Rajan. "Not only has California been a national leader in job growth for the last year, but we were responsible with the taxpayers' money in doing it."